Last checked at 
* European shares rise
* H&M, STMicro deliver strong updates
* But Bayer sinks on impairment hit
* Wall St jumps at the opens
Welcome to the home for real-time coverage of European equity markets brought to you by Reuters
stocks reporters. You can share your thoughts with Joice Alves (joice.alves@thomsonreuters.com)
and Julien Ponthus (julien.ponthus@thomsonreuters.com) in London and Stefano Rebaudo
(stefano.rebaudo@thomsonreuters.com) and Danilo Masoni (danilo.masoni@thomsonreuters.com) in
Milan.
SPECULATION ON THE SWISS FRANC (1335 GMT)
Expectations are often a lot more powerful than facts in financial markets and this might be
the case for the Swiss Franc in the near future.
The Swiss National Bank spent 51.5 billion Swiss francs ($55.9 billion) in the second
quarter on currency interventions to curb the safe-haven Swiss franc's strength, up from 38.51
billion in the first quarter, the central bank said yesterday under its new policy of releasing
data quarterly.
Now according to ING Bank analysts, while U.S. Treasury “autumn report is unlikely to be
published before the U.S. election,” the risk of Switzerland being labelled as currency
manipulator by the U.S. might generate “fresh CHF speculative buying.”
In January 2020 the Swiss franc hit its strongest against the euro in almost three years
after the U.S. added Switzerland to its watch-list.
ING recalls that U.S. criteria on this matter include a trade account surplus as well as
significant and one-sided interventions in the forex market.
“Despite normally disclosing the size of currency interventions once a year in the Annual
Report, the Swiss national bank announced that it engaged in currency interventions worth an
amount that narrowly exceeds 13% of Switzerland’s GDP” in H1 2020, an ING research note says.
But we shouldn’t forget that expectations of more interventions by the SNB can trigger the
opposite effect, keeping the bullish mood on the Swiss Franc in check.
Early this year the U.S. Treasury Department cited continued concerns about the currency
practices of eight countries - Germany, Ireland, Italy, Japan, Malaysia, Singapore, South Korea
and Vietnam - and added a ninth, Switzerland, to its list.
The SNB denied its interventions to weaken the currency were intended to give Switzerland a
trading advantage.
In the chart below the recent progressive depreciation of the Swiss Franc against the dollar
while the euro dollar was rising.
(Stefano Rebaudo)
*****
TALK OF THE TOWN: CONTESTED U.S. ELECTION RESULT RISK (1054 GMT)
There's been a lot of chatter about the risk of a "contested" election result in the U.S.,
especially after Trump refused to commit to accepting the result (of course, if he lost the
election).
By the way, what does "contested" really mean?
When analysts talk of a contested result, this could mean anything from results being too
close to call or taking longer than usual to count, to recounts, litigation, Supreme Court
involvement, or even a more extreme scenario of increased civil unrest if Trump refuses to
accept a Biden victory.
Markets hate uncertainty and some banks have already warned about volatile moves in the
immediate aftermath of the Nov. 3 election. In fact, options activity (VIX etc) implies jumpy
markets until December.
But some are sceptical about the likelihood of any prolonged impact. In a note to clients,
Nordea dismissed the risk as “nonsense” and Mizuho’s head of FX sales for financial
institutions, Neil Jones, said that even a stalemate was unlikely to result in more risk-averse
moves.
Tom McLoughlin, UBS’s head of fixed income for the Americas, said that the fact that markets
did not react significantly to Trump’s comments on the subject during the presidential debate
suggests that they have already acknowledged and priced in the risk of a contested outcome.
McLoughlin said that Trump is likely to start legal action if he loses, but that the
uncertainty is likely to be temporary. He advises clients to sit tight, noting that equity
markets soon retraced their losses when the election result was contested in 2000.
"It makes sense for individual private investors to avoid restructuring completely their
portfolios just to accommodate this period of time, which we think will be short-lived," he
said.
(Elizabeth Howcroft)
*****
LAGARDERE SURGES 14%: ANY TIP ANYONE? (1212 GMT)
Shares in Lagardere are clearly this session's sensation: they're up about 14%, surfing on
their highest level since June 2019 but there's just a little problem here: no one appears to
know why!
"It's crazy", a Paris-based sales trader just told us, noting that there was absolutely
nothing in the news flow to justify such a move.
Volumes are already above their 90 day average, showing there's clearly more to the move
than a very fat finger, he added.
Loss-making Lagardere is one of the most unlikely winner of the post COVID19 market crash.
Lagardere, which owns a chain of shops in airports and train stations, had been hammered when
COVID-19 travel restrictions had hit the travel and leisure sector.
Yet, its shares have been multiplied by about 3 since March with the company becoming a
tug-of-war between some of France's most powerful tycoons fighting for its control.
Possible plans to shake-up the corporate structure of Lagardere and making it easier to it
take over, oust Arnaud Lagardere or even break it up have ignited a speculation frenzy.
With its key holdings in the French press, it is also seen as a strategic asset in the
French political arena, particularly ahead of the presidential elections of 2022.
Read our latest story on this French corporate saga here:
French billionaire Arnault builds up Lagardere holding
Here's Lagardere share performance in the last year and how it sky-rocketed close to 200%
since March:
(Julien Ponthus, Danilo Masoni and Gwenaelle Barzic)
*****
OCADO: THE SELL-SIDE ISN'T KEEPING UP (1035 GMT)
Ocado has crossed a big benchmark by overtaking Tesco's in terms of market cap and if it
keeps up rising on that rate, it sure seems like it will soon go over Ahold Delhaize to take the
crown as the biggest listed European supermarket retailer!
Of course, a lot has been said about Ocado not being your average retailer.
"Ocado carries tech-level valuations, and has been touted as the Microsoft of retail", wrote
Neil Wilson of Markets.com about two weeks ago when its results were published.
The online retailer has built-up a strong momentum thanks to the lockdown, its distribution
deal with Marks & Spencer, its international expansion and the popularity of tech, which is the
ultimate play of the post COVID-19 market.
One thing though which could pour some cold water on the frenzy surrounding the stock is
that sell side analysts are not keeping up with the share price surge.
The median target price for the stock is 2,300 pence while the shares are currently trading
above 2,800 pence, which is quite close to its all time high of 2,914 pence.
More worryingly perhaps, according to I/B/E/S Refinitiv data, out of 18 sell-side analysts,
only one has a target price (3,460p) about its current level.
Anyhow, here's how Ocado has overtaken Tesco and is getting closer to Ahold Delhaize:
Here's some reading:
Ocado buoyed by online delivery demand and M&S switchover:
Ocado ropes in Rolls-Royce executive to replace long-time CFO:
Online grocery's share of UK market set to double, Ocado says: [nL5N2EL14Y)
(Julien Ponthus and Thyagaraju Adinarayan)
*****
U.S. ELECTIONS? IMPLIED SPX VOLATILITY IS HIGHER IN DECEMBER (0957 GMT)
Very little has changed about the pricing of U.S. presidential election risk after the
unruly and basically uneventful debate between the two candidates, Biden and Trump, according to
analysts.
UBS expects the risk pricing to maintain its current profile, highlighting SPX December
implied volatility is above November, with strikes ranging from 3100 (-7%) to 3800 (+13%).
Republican President Donald Trump has questioned the validity of mail-in votes, raising
concerns that the results of one or more states will be decided in the courts.
The legislation's Dec. 11 end date will require Congress to return to the government funding
question after what is likely to be a bruising fight over whether to confirm Trump's third
Supreme Court nominee, Amy Coney Barrett.
But what about the outcome of the elections.
According to UBS, “A split government may result in the most post-election day tension,
although this is highly subjective and fluid.” Let’s see in detail.
It’s true that a Democrat sweep will be a challenge for equity fundamentals as higher
corporate taxes and more regulatory overhang is expected but it will also reduce the chance of a
protracted disagreement over the outlook.
Status quo “could be tactical positive” given the amount of risk priced into markets, but it
may still be contested.
A Biden win with a Republican Senate suggests a tightly contested election while “it might
read positively over the medium term,” as major policy shift will be less likely along with
“daily Twitter/headline risks.”
(Stefano Rebaudo)
*****
THE M&A CARRY TRADE EXPLAINED (0858 GMT)
After a record third quarter that saw $1 trillion deals globally, the outlook for M&A
remains sound.
A recovering economy and possible good vaccine news that boosts CEOs' confidence will likely
drive an acceleration over the coming quarters.
And the monetary backdrop also remains extremely favourable for companies to build up their
cash buffers on the bond market and engage in the M&A carry trade, especially in Europe.
"The economics of debt-financed M&A look compelling. European companies can borrow at 1% in
the bond market to buy an earnings yield of 6% in the equity market," Citi says.
Out of the 10 biggest recent deals, 7 of them were financed primarily via Cash/Debt, it
notes.
In regional differences, Citi says the M&A carry trade is even more attractive in the UK and
less so on pricey Wall Street.
(Danilo Masoni)
*****
OPENING SNAPSHOT: H&M, STMICRO AND BAYER (0740 GMT)
European shares surged after Sweden's retailer giant H&M and chipmaker STMicroelectronics's
results beat forecast.
Hopes for a new stimulus package from the U.S. and data showing Spanish factory activity
picked up in September also helped sentiment.
Having shrunk the previous month amid a resurgence of coronavirus infections, IHS Markit's
Purchasing Managers' Index (PMI) of Spanish manufacturing companies rose to 50.8 in September
from 49.9 in August. A reading above 50 denotes growth.
The pan European index is up 0.7% in early trade, touching a 10-day high, with
retailers and banks leading the gains.
In terms of single stocks, H&M shares jumped 6.3% to the top of the STOXX and
hitting its highest level since June after the company reported Q3 profit beat estimates.
The Paris index is outperforming the European market after chip maker
STMicroelectronics said its preliminary Q3 net revenues were higher than forecast, at $2.67
billion.
Meantime, shares at Bayer sank 11.7%, touching its lowest point since March, as
the drug maker announced plans for more cost cuts and said it will take impairment charges on
its agricultural business amid low commodity prices.
(Joice Alves)
*****
ON OUR RADAR: STMICRO, ROLLS ROYCE, BAYER (0645 GMT)
Futures are pointing for European shares in positive territory at the opening as hopes for
more U.S. stimulus measures are helping risk appetite.
In the corporate world, semiconductor manufacturer STMicroelectronics reported
preliminary Q3 revenue exceeded its expectations, boosted by a sharp rise in demand for
automotive products and microcontrollers.
Britain's Rolls-Royce would raise 2 billion pounds ($2.6 billion) in a rights issue,
1 billion through a bond offering and gain loans support to recapitalise its balance sheet.
Shares in Bayer are down 4.7% after the company announced plans for more cost
cuts, impairment charges.
Meantime, the U.S. FDA has broadened its investigation of a serious illness in AstraZeneca
Plc's COVID-19 vaccine study and will look at data from earlier trials of similar
vaccines developed by the same scientists.
On the M&A front, shares in Swiss contract drug maker Lonza are seen up 3% after
the company launched the sale of its Lonza Specialty Ingredients (LSI) unit, which could be
worth 3-3.5 billion Swiss francs ($3.25-3.79 billion).
French utility Engie moved closer to selling its stake in waste and water group
Suez to Veolia after a 3.4 billion euro offer ($4 billion).
KLM, the Dutch arm of Air France-KLM SA, has reached an agreement with its flight
staff, excluding pilots, over cost cuts needed in return for state aid.
British retailer Halfords raised its first half profit outlook as it continued to
benefit from a cycling boom during the coronavirus pandemic.
Meantime more bad news for the battered banking sector from the U.S., where the FED will
extend big bank buybacks, dividend curbs through end of year.
(Joice Alves, Danilo Masoni, Stefano Rebaudo)
******
MORNING CALL: MORE STIMULUS, TOUGHER LOCKDOWN (0536 GMT)
European shares are seen in positive territory as hopes for more U.S. stimulus measures help
risk appetite.
U.S. House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin
both said they hope for a breakthrough on a coronavirus relief package, as the House postponed a
vote on a new $2.2 trillion Democratic coronavirus bill.
But growing uncertainty ahead of November's U.S. presidential election and rising
coronavirus cases in Europe capped the optimism.
British PM Boris Johnson urged people to obey rules imposed to tackle an accelerating second
wave of the pandemic outbreak, adding that otherwise a tougher lockdown could be implemented.
Investors will also be watching EZ and UK manufacturing PMI data due to be out this morning
at 8 and 8.30 GMT.
Financial spreadbetters at IG expect London's FTSE to open 25 points higher at 5,891,
Frankfurt's DAX to open 56 points up at 12,817 and Paris' CAC to open 27 points higher at
4,830.
(Joice Alves)
*****
